What 401k Plan Is Best For Me

The 6 Best Solo 401 Companies Of 2022

• Best for Account Features: E*TRADE
• Best for Mutual Funds: Vanguard
• Best for Real Estate: Rocket Dollar

Get $100 when you open a new, eligible Fidelity account with $50 or more. Use code FIDELITY100. Limited time offer. Terms apply. Offer Disclosure.

Fidelitys self-employed 401 plan is our pick for best overall due to a combination of very low fees, a wide range of investment choices, and the companys emphasis on retirement savings.

• No regular account fees and no commissions for stock or ETF trades

• 10,000+ no-transaction-fee mutual funds including four Fidelity funds with no fund expenses

• Retirement resources including calculators, apps, and education resources to help you improve your retirement savings and investment strategy

• Some active traders may want more powerful active trading tools

• No electronic deposit for contributions

Fidelity self-employed 401 accounts are a great choice for fee-conscious investors, earning our top overall pick. The Fidelity solo 401 charges no opening or closing costs and no annual maintenance fees. Customers can invest in stocks, ETFs, and over 3,400 mutual funds with no trading commissions. That means many small business owners could use this account without ever paying any fees to Fidelity. If you need help to place orders, however, the $32.95 broker-assisted trade fee may be an impediment.

Read our full Fidelity review.

Compare The Best 401 Plan Providers

What Funds Should You Buy

There are a variety of funds types to consider when saving for retirement. Here are the most popular options.

Actively managed mutual funds

These funds have been around for decades and are still the most-popular kind of security among retail investors. They hold a variety of stocks or bonds, and sometimes both, in one investment vehicle. Mutual funds are ideal for people who don’t want to choose their own stocks. Instead, a professional fund manager can do it for you. If you want to own a bunch of international stocks, but don’t want to pick individual companies, then buy an international stock fund. The same goes for tech stocks, U.S. stocks and corporate bonds there’s a fund for everything. The main drawbacks are fees and flexibility. Because someone else is doing the stock picking, fees are higher on actively managed mutual funds than on other kinds of investment vehicles. You also can’t buy or sell them during the day as they’re only priced after the market closes.

Index funds

Exchange-traded funds

Target date funds

Build your portfolio

A lot of people like investing on their own, but when it comes to retirement savings it’s a good idea to work with a financial advisor who has a certified financial planning designation. Here are a few things to look for in a good advisor.

Think about fees

You May Like: How To Do A Direct 401k Rollover

What Kinds Of Mutual Funds Should I Choose For My Roth 401

Diversifying your portfolio is key to maintaining a healthy amount of risk in your retirement savings. Thats why it’s important to balance your investments among four types of mutual funds:

• Growth and income
• Aggressive growth

If one type of fund isnt performing well during any brief market dips, the other ones can help your portfolio stay balanced. Its like your own personal system of checks and balances!

If youre not sure which mutual funds to put into your Roth 401, no problem. Its always a good idea to sit down with a local investment professional who can help you understand the different types of funds so you can choose the right mix.

Why We Chose It

T. Rowe Price is a well-respected name in the retirement planning industry, with more than 80 years in the business. It offers more than 100 mutual funds to plan participants, along with a wide range of funds from other firms, which allows your employees to invest the way they want to.

One significant perk of T. Rowe Price is the variety of plans it supports. You can use it to provide a 401 plan or a 457, 403, or even a defined benefit plan.

A defined benefit plan is one in which the amount the employee receives is defined by the plan instead of their own contributions. A traditional pension is an example of a defined benefit plan.

Employers such as state and local government agencies and some nonprofit organizations may offer tax-deferred 457 plans. Meanwhile, employers such as public educational institutions , certain nonprofits, and churches or church-related organizations may offer 403 plans.

This lets you tailor your retirement plan to the needs of your company.

• Long history in the retirement plan industry

• Variety of plans supported

Also Check: Can The Irs Garnish Your 401k

Understanding Your Investment Account Options

Now that youve made the right choice in deciding to save for retirement, make sure you are investing that money wisely.

The lineup of retirement accounts is a giant bowl of alphabet soup: 401s, 403s, 457s, I.R.A.s, Roth I.R.A.s, Solo 401s and all the rest. They came into existence over the decades for specific reasons, designed to help people who couldnt get all the benefits of the other accounts. But the result is a system that leaves many confused.

The first thing you need to know is that your account options will depend in large part on where and how you work.

Types Of 401k Plans: Which One Is Right For You

Use a retirement calculator to choose the best plan. You and Your 401K

If your employer offers a 401k plan, experts generally agree that you should be taking advantage of it and making contributions from each paycheck toward your retirement savings. However, not all employer-sponsored retirement plans are alike. Many employers offer what is considered a traditional 401k, but there are also safe harbor 401k plans, SIMPLE 401k plans, Roth 401k plans and 403b plans.

Keep reading to find out about which 401k plans might be available to you, the pros of cons and each, and how to determine if a 401k plan is the right choice for you and your retirement planning and saving goals.

Don’t Miss: Can You Rollover A 401k Into A Traditional Ira

Roth 401 Vs : Which One Is Better

15 Min Read | Aug 26, 2022

If youve read through your companys benefit package lately, you probably noticed a new option when it comes to saving for retirement: the Roth 401.

Just over the last five years, the number of plans offering a Roth 401 has skyrocketed. About 3 out of 4 workplace retirement plans now offer a Roth optionwhich is great news for you!1

Younger savers are starting to take advantage of this new option and the tax benefits that come with it. In fact, Gen Z is now the most likely group to put money in their Roth 401 at work.2

Were big fans of the Roth 401. In fact, in a showdown between a Roth 401 versus a traditional 401, wed go with Roth every single time! But lets dig into the differences between these options so you can make the best decision.

Best Retirement Plans: Choose The Right Account For You

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list ofour partnersandhere’s how we make money.

The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Gone are the days when workers could count on an employee pension plan and Social Security to cover their costs during those golden years. Today, pensions are a rarity and Social Security isnt a slam-dunk for future generations.

That’s why Uncle Sam wants needs you to save for retirement and is offering tax breaks on retirement accounts. Here’s how to to find the best retirement plans to save for your future.

Read Also: Can My Wife Take My 401k In A Divorce

The Federal Thrift Savings Plan

The Thrift Savings Plan is a lot like a 401 plan on steroids, and its available to government workers and members of the uniformed services.

Participants choose from five low-cost investment options, including a bond fund, an S& P 500 index fund, a small-cap fund and an international stock fund plus a fund that invests in specially issued Treasury securities.

On top of that, federal workers can choose from among several lifecycle funds with different target retirement dates that invest in those core funds, making investment decisions relatively easy.

Pros: Federal employees can get a 5 percent employer contribution to the TSP, which includes a 1 percent non-elective contribution, a dollar-for-dollar match for the next 3 percent and a 50 percent match for the next 2 percent contributed.

The formula is a bit complicated, but if you put in 5 percent, they put in 5 percent, says Littell. Another positive is that the investment fees are shockingly low four hundredths of a percentage point. That translates to 40 cents annually per $1,000 invested much lower than youll find elsewhere.

Cons: As with all defined contribution plans, theres always uncertainty about what your account balance might be when you retire.

What it means to you: You still need to decide how much to contribute, how to invest, and whether to make the Roth election. However, it makes a lot of sense to contribute at least 5 percent of your salary to get the maximum employer contribution.

How To Choose A 401 Provider

Youll first need to choose the firm that provides the type of retirement plan you really want to offer, whether thats a traditional 401 plan or something else. Also take a look at the plan design to ensure that their eligibility requirements, vesting schedule, investment options and other details are appropriate for your employees. Youll also need to evaluate the fees attached to your retirement plan. Often, fees vary depending on your business and the number of employees, so you will need to get in touch with each provider directly to receive a quote.

On a qualitative level, youll likely want to work with a 401 provider with excellent customer service, individualized investment and plan design guidance and a support team thats easy to reach especially because the landscape of retirement plans can be confusing to navigate, both for you and your employees.

Moreover, you should consider a provider that acts as a fiduciary advisor. Fiduciaries are legally and ethically bound to provide unbiased investment advice that aligns with their clients best interests. They also manage, monitor and adjust their clients retirement plans. There are several types of fiduciaries, but youll most often see the term 3 fiduciary.

Also Check: Can I Put Money In 401k And Ira

Is A Roth Ira Right For Me

Youve likely heard a lot of buzz over the years about the other main type of IRARoth IRAs. That’s because Roth accounts offer the potential for tax-free growth. Unlike traditional IRAs, which offer the immediate benefit of tax-deductible contributions while youre working , the main appeal of Roth IRAs is the long-term benefit of tax-free future income.

But does a Roth IRA make sense for your retirement? If so, are you eligible to open one, or should you convert your existing retirement accounts to a Roth? As you might guess, the answer depends on your personal situation. But here are some considerations that may help you decide if a Roth IRA is right for you.

Save Invest And Save Some More

Most experts say at least 10% of your income should go toward retirement. If youve started saving later in life, you may need to bump that up.1

Not possible right now? Thats OK. Save what you can and commit to increasing 1% every year until you can hit the mark. Try to save enough to get your employers matching contribution so you dont leave money on the table.

Options for saving and investing can include:

• Company sponsored retirement plans like a 401, 403, or a Thrift Savings Plan for government employees
• A variety of investments like mutual funds, stocks, bonds
• Life insurance that builds cash value

The sooner you start, the more potential your money has to grow over time. Its all about compound earningswhen your money earns more money.

Lets say you invest $10,000. And you earn 5% over a year.

So now you have $10,500. Over the coming year, you make 5% not just on your initial $10,000 but also on the $500 you earned last year. Thats the benefit of compounding in action.2

Read When to start investing: 4 signs you’re ready to learn more about the power of compound earnings.

To learn how 401s, traditional and Roth IRAs, and Roth 401s compare, read about retirement savings account options.

Recommended Reading: Can I Put My 401k Into An Ira

How I Built The Perfect 401 Portfolio For Me

I’ve linked to articles explaining why each of these world-beater blue-chip assets is worth investing in, including the growth outlook, investment thesis, and risk profile.

This is as simple and concentrated a portfolio as is reasonable and prudent, and look at how it compares to the S& P 500 and 60/40.

Superior fundamentals to the 60/40 in every way.

Superior fundamentals to the S& P 500 in every way.

Superior fundamentals to SCHD in every way.

Heck, it’s higher return potential than the Nasdaq, but with 6.3X the safe yield!

What kind of difference could this ZEUS 401 portfolio make for me over the next 40 years ?

Inflation-Adjusted Consensus Portfolio Value: $43,500

On just 2023’s 401 contribution alone, potentially $2.4 million in additional inflation-adjusted wealth.

• don’t just retire in comfort retire in safety and splendor.

Duke University

DBMF

Barclays

5% safe yield today?

It’s A Question Of When You Pay The Taxes

The basic difference between a traditional and a Roth 401 is when you pay the taxes. With a traditional 401, you make contributions with pre-tax dollars, so you get a tax break up front, helping to lower your current income tax bill. Your moneyboth contributions and earningsgrows tax-deferred until you withdraw it. At that time, withdrawals are considered to be ordinary income and you have to pay Uncle Sam his due at your current tax rate there may be state taxes as well.

With a Roth 401, it’s basically the reverse. You make your contributions with after-tax dollars, meaning there’s no upfront tax deduction. However, withdrawals of both contributions and earnings are tax-free at age 59½, as long as you’ve held the account for five years.

So it mostly comes down to deciding when it’s better for you to pay the taxesnow or later. And that depends a lot on your timeframe as well as what the future may look like.

Read Also: How Much Can I Rollover From 401k To Ira

Understand What A 401 Is

While you sign up for your 401 through the company you work for, it is typically managed by a separate financial firm, such as Vanguard, Fidelity, Principal, Schwab, etc. This is the company you will receive important information and disclosures from about your account and investments.

If you leave your employer, in most cases your account will remain at the financial firm that originally managed it, unless you roll it over to a new company .

You can begin withdrawing money penalty-free at 59 ½ in most cases. If you withdraw money before that age, you will be hit with a 10% early withdrawal penalty and pay income taxes on the distributions. You can also take a 401 loan, which needs to be repaid, including interest. Learn more about that here.

Not every employer offers employees a 401. If that’s the case, you can open an IRA, which also offers tax advantages for those investing for retirement, on your own through a brokerage firm.

Why I’m Investing 100% Of My 401 Into 5 World

In 2023 I’m going to rebalance my portfolio around five world-beater blue-chip assets based on the Dividend Kings ZEUS retirement portfolio strategy.

• 33% blue-chip ETFs
• 33% hedging assets
• 33% individual stocks.

ZEUS = Zen Extraordinary Ultra SWAN and let me show you why it lives up to that name.

In fact, ZEUS is the king of sleep well at night retirement portfolios.

Now there are infinite combinations of the ZEUS portfolio.

Here is our family friend Rose’s ZEUS High-Yield Ultra-Low Volatility portfolio.

You can build a ZEUS portfolio to optimize for any goal you want.

• maximum safe yield today
• maximum safe retirement income over time
• maximum long-term returns
• safety and quality.

You can use anywhere from 1 stock exchange-traded fund to as many as you want .

You can use using hedging ETFs like EDV , DBMF , SHY – cash.

And you can buy anywhere from 2 to 20 individual blue chips, which is the key to this strategy.

• the bonds, managed futures, and cash help you sleep well
• the stock ETFs ensure you can’t lose all your money
• the individual blue-chips turbocharge your yield, growth, and total returns.

Let me show you how I built my personally optimal ZEUS 401 retirement portfolio.

• my Roth IRA is the same thing, just 1/3rd the size.

Also Check: How To Find Out If You Have Unclaimed 401k Money